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Financial Services Law Insights and Observations

IRS Finalizes New Reporting Requirement for U.S. Banks


Consumer Finance

On April 19, the Internal Revenue Service published a final rule that requires U.S. banks to report annually the deposit interest paid to nonresident alien account holders. The reporting requirement will apply to interest payments made on or after January 1, 2013. The IRS is intending to collect this information to help combat offshore tax evasion by (i) ensuring that the IRS can exchange information with other jurisdictions, (ii) supporting implementation of the Foreign Account Tax Compliance Act, and (iii) making it more difficult for U.S. taxpayers to falsely claim to be nonresidents in order to avoid taxes on deposit interest income. To address concerns about the confidential treatment of collected information, the final rule limits the IRS’s exchange of the reported information to those countries with which the U.S. has an exchange-of-information agreement. The IRS believes that those agreements contain legal limitations and administrative safeguards to ensure confidential treatment of the information.